This paper intends to discuss on the impact of fall in the crude oil prices on its demand from the perspective of petroleum exporting nations. The reasons responsible for the fall of oil prices have also been highlighted in the paper. Based on the discussion, it has been found that GDP of the concerning countries has significantly been affected due to the fall in crude oil prices.
The global crude oil price has dropped in June 2014 that marked an end to the four year stability in high oil prices that began in the late 1990s (Kilian and Murphy, 2014). According to the study, the decline in oil prices between June 2014 and Jan 2015 is the third largest in the past 30 years since the oil producing nations participated in the international trade (Etornam and Denis, 2015). The changes in the supply as well as the demand conditions are important but there were other factors such as a significant shift in the policy objectives of the Oil Producing and Exporting Countries (OPEC), less spillover of the geo-political risk factors and the appreciation of the US dollar (Reboredo and Rivera-Castro, 2013). The low oil prices within the economy would have a significant impact on the growth as well as the inflation. Moreover, weak oil prices are also expected to result a shift in the significant real income from the oil exporting countries to the oil importing countries (Baumeister and Peersman, 2013). The research aims at evaluating the impact of the fall in oil prices on the supply of crude oil by the petroleum exporting nations. It also provides the researcher with the scope to understand the causes for the fall in global crude oil prices.
Causes for the sharp decline in Oil Prices
The demand and supply conditions decides the long run trend for the oil prices, but in the short run, the expectations leads to the price fluctuations within the economy (Kilian and Lee, 2014). The expectation play a key role in the rise in demand for crude oil in the global market because, the countries expecting that the price of crude oil would rise in future would have high demand for crude oil in order to store it for future use (Singleton, 2013). On the contrary, there is a fall in the demand for crude oil in case the oil importing countries expect that the price of crude oil would fall in the future. The fall in price of oil was marked from $108 per barrel to $80 per barrel (Dube and Vargas, 2013).
However, the researchers have analysed that the sudden decline in the oil prices is due to the increase in supply of crude oil by the oil exporting countries. The production of crude oil has doubled in the recent years and as a result, the global oil supply growth has outweighed the global oil demand growth in the economy (Wang and Chueh, 2013). With the production of around 36 mb/d of which 30 mb/d is subject to the quota, as per the study, OPEC comprises of the 40% of global supply of crude oil and the supply is expected to rise in future (Chapman, 2014). The change in objectives of the oil production by OPEC is expected to increase the supply and the price would fall further.